GameStop Corp., a global family of specialty retail brands that makes the most popular technologies affordable and simple, reported sales and earnings for the fourth quarter and fiscal year ended January 28, 2017.

Paul Raines, chief executive officer, stated, “GameStop’s transformation continued to take hold in 2016, as our non-gaming businesses drove gross margin expansion and significantly contributed to our profits. Meanwhile, the video game category was weak, particularly in the back half of 2016, as the console cycle ages. Looking at 2017, Technology Brands and Collectibles are expected to generate another year of strong growth, and new hardware innovation in the video game category looks promising. As we continue our transformation plan, we will also be focused on managing SG&A spend, rationalizing our global store portfolio, and maximizing free cash flow generation to drive shareholder value.”

Fourth Quarter Results
Total global sales decreased 13.6% to $3.05 billion, while consolidated comparable store sales declined 16.3% (-20.8% in the U.S. and -4.6% internationally). As stated in the company’s holiday sales release in January, the fourth quarter was significantly impacted by weak sales of certain AAA titles and aggressive console promotions by other retailers on Thanksgiving Day and Black Friday. As a result, new hardware sales declined 29.1% and new software sales declined by 19.3%. Pre-owned sales outperformed new video games, declining 6.7% compared to the fourth quarter of 2015.

Non-GAAP digital receipts declined 7.7%, to $373.4 million and GAAP digital sales declined 5.8%, to $57.2 million. Digital sales were impacted by the decline in new video game sales.
  
Technology Brands sales, which are not included in comparable store sales, increased 43.9% to $256.0 million, primarily driven by year-over-year store growth. Technology Brands adjusted operating earnings were $34.0 million, an 88.9% increase compared to $18.0 million in the prior-year quarter. On a GAAP basis, operating losses were $12.0 million due to store rationalization and asset impairment charges recorded during the fourth quarter.

Collectibles sales rose 27.8% to $212.4 million, driven by strong sales of Pokémon-related toys and apparel. The company added 17 Collectibles stores during the quarter, bringing the total global portfolio to 86 stores, including 24 ThinkGeek stores in the U.S.

GameStop’s fourth quarter GAAP net earnings were $208.7 million, or $2.04 per diluted share, compared to net earnings of $247.8 million, or $2.36 per diluted share in the prior-year quarter. The fourth quarter results include charges of $56.5 million ($35.1 million, net of tax), or $0.34 per diluted share. These charges are primarily related to store rationalization and asset impairments to optimize the Technology Brands store portfolio after four years of rapid expansion. Additionally, the quarter and the full year were positively impacted by a $27.3 million tax benefit related to international tax planning efforts.

Excluding these charges, GameStop's adjusted net earnings for the fourth quarter were $243.8 million, compared to adjusted net earnings of $251.6 million in the prior-year quarter. Adjusted diluted earnings per share were $2.38 compared to adjusted diluted earnings per share of $2.40 in the prior-year quarter.

Fiscal 2016 Results
Total global sales decreased 8.1% to $8.61 billion, while consolidated comparable store sales declined 11.0% (-13.5% in the U.S. and -4.4% internationally).

Highlights of fiscal 2016 include:

• Expanded gross margin rate nearly 400 basis points to a record of 35.0%, representing our third consecutive year of gross margin improvement.

• Technology Brands achieved the goal of delivering between $85 million and $100 million of adjusted operating earnings in fiscal 2016 as it contributed $90.2 million for the year, a 216.4% increase over 2015. On a GAAP basis, operating earnings increased 63.7% from $27.0 million to $44.2 million.

• The Collectibles business achieved the high-end of its $450 to $500 million revenue target, as sales increased 59.5% to $494.1 million in fiscal 2016.

• Non-physical gaming businesses comprised 36.9% of GME’s total adjusted operating earnings in fiscal 2016 compared to 24.5% in fiscal 2015.

• Non-GAAP digital receipts grew 4% to $1.1 billion. GAAP digital revenue declined 3.9% to $181.0 million.

GameStop's fiscal 2016 GAAP net earnings were $353.2 million, including $60.6 million ($37.7 million, net of tax) of charges related to store closings and asset impairments. This compared to net earnings of $402.8 million in fiscal 2015. Diluted earnings per share were $3.40, compared to diluted earnings per share of $3.78 in fiscal 2015.

Excluding these charges, GameStop's adjusted net earnings for the full year were $390.9 million, or $3.77 per diluted share, compared to adjusted net earnings of $415.6 million, or $3.90 per diluted share, in fiscal 2015.  

A reconciliation of non-GAAP adjusted net income, operating earnings and Tech Brands operating earnings to GAAP is included with this release (Schedule III).

Capital Allocation Update
During the fourth quarter, the company repurchased 1.66 million shares at an average price of $23.56, or $39.1 million of stock. For the full year, GameStop repurchased 3.01 million shares at an average price of $24.94, or $75.1 million of stock. As of today, there is $170.2 million remaining on the existing repurchase authorization.

On March 1, 2017, GameStop announced a 2.7% increase of its regular annual cash dividend from $1.48 to $1.52 per share. On March 28, the company will pay its quarterly cash dividend of $0.38 per common share.

Earnings Outlook
Rob Lloyd, GameStop chief financial officer, stated, “Going forward, GameStop will provide annual guidance, and no longer provide quarterly EPS or same store sales guidance. We believe that providing only annual guidance will reduce investor distraction as we continue to diversify the company and seek to maximize long-term shareholder value. It also benefits our organization in that it concentrates attention on longer-term targets and reduces the focus on short-term results, which can be volatile given the current business environment.”

2017 Outlook
GameStop is providing the following guidance for fiscal 2017 (dollars in millions, except per share):

Earnings per share guidance is calculated based on weighted average shares outstanding of 102,500,000.

In 2017, the Company anticipates that it will open approximately 35 new Collectibles stores globally, and approximately 65 new Technology Brand stores. The Company also anticipates that it will close between 2% to 3% of its global store footprint.